By Suban Abdulla
LONDON (Reuters) -British inflation slowed to its weakest in three months in March according to official figures that showed other measures closely watched by the Bank of England cooling too.
Inflation slowed to an annual rate of 2.6% in March from 2.8% in February, and below expectations of 2.7% in a Reuters poll of economists, the Office for National Statistics said.
Falling fuel prices and unchanged food costs helped bring down the inflation rate but the price of clothes rose strongly after a surprise fall in February, the ONS said.
The BoE’s most recent forecasts show inflation is set to peak at 3.7% in the third quarter this year – nearly double the central bank’s 2% target – driven mostly by energy costs and regulated tariffs for household utility bills and bus fares.
Since those forecasts were made, U.S President Donald Trump’s decision to impose sweeping trade tariffs have raised the prospect of a slowdown in the global economy.
Martin Sartorius, principal economist at the Confederation of British Industry, said the higher US tariffs could put both upward and downward pressure on inflation in the UK, but the BoE was likely to cut interest rates next month.
“Looking ahead, we expect them to continue their ‘gradual and careful’ approach to reducing borrowing costs amid an uncertain economic environment,” Sartorius said.
BoE Deputy Governors Clare Lombardelli and Sarah Breeden and Monetary Policy Committee member Megan Greene have all said it is too early to judge the inflation implications resulting from Trump’s moves.
Sterling fell by about a fifth of a cent against the US dollar after the figures were published.
Inflation for services slowed to 4.7% from 5.0% in February. The Reuters poll had pointed to a slightly stronger 4.8% increase.
Core headline inflation, which excludes energy, food and tobacco prices, also eased a touch.
However, despite a slowdown in price growth from levels above 11% in 2022, inflation in Britain continues to be a concern for consumers.
Inflation expectations among the public and business have risen, adding to unease among BoE policymakers who are keeping a close eye on other gauges of price pressures in the economy as they assess when to reduce borrowing costs.
Ahead of Wednesday’s inflation data release, financial markets had almost fully priced in the BoE’s benchmark Bank Rate falling to 4.25% from 4.5% at its next scheduled monetary policy announcement on May 8.
(Reporting by Suban Abdulla; Editing by William Schomnberg)
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